Potential restructuring of MRCB in the pipeline

This article first appeared in The Edge Malaysia Weekly, on May 30, 2022 - June 05, 2022.
Potential restructuring of MRCB in the pipeline
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MALAYSIAN Resources Corp Bhd (MRCB) may be undergoing a restructuring exercise in the near future, with the Employees Provident Fund (EPF) — its largest shareholder with a 36.21% stake — taking the lead, industry sources say.

The purpose of the restructuring exercise, the sources say, is that the EPF is looking at consolidating its real estate assets.  The fund owns an 80% stake in Bukit Jalil Sentral Property Sdn Bhd, which has 76 acres of land in Bukit Jalil, and a 30% stake in Kwasa Sentral Sdn Bhd, which has a 64-acre tract, that have been  awaiting development for years. Meanwhile, MRCB owns 27.83% of Sentral REIT, which has in its portfolio Platinum Sentral and Menara Shell.

Maybank Investment Bank is understood to have been roped in by the retirement fund to help with the restructuring. Plans being explored for the property development and construction company include a merger or even a privatisation, but they are still at the exploratory stage.

MRCB is the third largest listed company on Bursa Malaysia that EPF owns in terms of shareholding after Malaysia Building Society  (65.87%) and RHB Bank Bhd (41.94%).

The EPF, in an email response to questions from The Edge over a possible pending corporate exercise, be it a merger or a privatisation, or its views on the management, said: “MRCB is a listed corporate that is managed by industry professionals who have the knowledge, experience and leadership capabilities to operate such an entity in the property, infrastructure, and construction sectors.

“As per other listed companies, MRCB is governed by a board who has the right experience and capabilities to support the management on strategic and operational matters. As a strategic shareholder of MRCB, the EPF engages both the board and management to ensure sustainable financial performance and value creation for all shareholders.

“MRCB will continue to look at options for the company to create shareholder value and ensure all shareholders’ interests are protected. The EPF does not comment on rumours or speculation of any kind in the market.”

At its close of 35 sen per share last Thursday, MRCB had a market capitalisation of RM1.52 billion. As at end-December 2021, MRCB’s net asset per share was RM1.01.

Certain quarters also say that EPF could opt to privatise MRCB together with the current management under Tan Sri Mohamad Salim Fateh Din, MRCB’s executive vice-chairman, and subsequently undertake a corporate exercise post privatisation. Mohamad Salim’s Gapurna Sdn Bhd is MRCB’s second largest shareholder with 15.48% equity interest.

There have also been murmurs in the market of MRCB being merged with other companies. However, sources familiar with the company say that a such a merger may only entail MRCB’s construction arm, leaving the company as a pure property player.

Gapurna came into MRCB as a 12.51% shareholder with 206.65 million shares on Aug 30, 2013, after MRCB bought over Nusa Gapurna Development Sdn Bhd and a few other Mohamad Salim-controlled companies, which owned among others, four parcels of land measuring 32.74 acres, and construction company Gelanggang Harapan Construction Sdn Bhd, for a total of RM729 million.

The acquisition was satisfied via the issuance of shares in MRCB, valued at RM1.55 per share and cash of RM111 million.

The land bank, located in choice areas such as Subang, Petaling Jaya and in Old Klang Road in the Klang Valley, were pegged a gross development value of RM5.7 billion then.

Mohamad Salim was appointed managing director on Sept 2, 2013.  

Under the new management, a number of corporate exercises were undertaken to revive MRCB.

In May 2017, the company announced a one-for-one renounceable rights issue of 2.86 billion rights shares at 85 sen apiece and 571.34 million free warrants to raise RM1.7 billion in fresh capital from shareholders, largely to pare down borrowings.

Apart from the cash call, EPF also sank more capital into the group.  To recap, MRCB won a RM1.34 billion job for refurbishment of the National Sports Complex in Bukit Jalil. The group would in return get three parcels of land in Bukit Jalil.  

Three years later, MRCB injected its 76 acres of land into a special purpose vehicle called Bukit Jalil Sentral Property Sdn Bhd and its major shareholder, EPF, bought an 80% stake in the company for RM1.07 billion. MRCB retained a 20% stake.  Consequently, this enabled the group to unlock the value of the land it had got from its refurbishment works in the sports complex.

MRCB’s borrowings have been an issue for a number of years. As at end-2016, its total bank borrowings amounted to RM2.94 billion, pegged at an annual average interest rate of 5.6%, while it had RM592.77 million in the kitty.

At the time, its subsidiary, MRCB Lingkaran Selatan Sdn Bhd, held the concession for the Eastern Dispersal Link (EDL) — an 8.1km expressway connecting the North-South Expressway at Pandan Interchange to Bangunan Sultan Iskandar, a Customs, Immigration and Quarantine complex in Johor Baru — but it experienced very low traffic volume. The concession was terminated at the end of 2017 and MRCB received a settlement of RM1.32 billion from the federal government. To put things in perspective, EDL accounted for 31.3% of MRCB’s debt at end-2017.

For the financial year ended December 2021, MRCB chalked up a net profit of RM15.83 million from RM1.45 billion in revenue against a net loss of RM177.37 million from RM1.2 billion in revenue in the preceding year.

As at end-December 2021, MRCB had deposits, cash and bank balances of RM578.71 million. Its long-term borrowings remain high at RM1.45 billion while it had short-term borrowings of RM479.45 million. It had retained earnings of RM160.53 million, and reported negative cash flow from operations of RM183.57 million.

 

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